IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v39y2025i3p27-44.html

Curbing Rising Housing Costs: A Model-Based Policy Comparison

Author

Listed:
  • Boaz Abramson
  • Tim Landvoigt

Abstract

Recent decades have seen house prices grow strongly relative to incomes, making housing ever less affordable. We develop and quantify a model of segmented housing markets to study the drivers of rising housing costs and to evaluate policies aimed at curbing these costs. We show that rising wealth dispersion, together with stagnating housing supply, can explain the observed increase in housing costs. Demand-side policies such as down payment assistance and mortgage interest deductions inadvertently cause upward pressure on house prices and exacerbate unaffordability. Supply-side policies such as tax credits for development or construction of affordable housing lower house prices by increasing the housing stock. Which type of new housing is built matters: new construction in the high-end segments improves affordability by more in all segments of the housing market compared to new construction in bottom-end segments.

Suggested Citation

  • Boaz Abramson & Tim Landvoigt, 2025. "Curbing Rising Housing Costs: A Model-Based Policy Comparison," Journal of Economic Perspectives, American Economic Association, vol. 39(3), pages 27-44, Summer.
    • Handle: RePEc:aea:jecper:v:39:y:2025:i:3:p:27-44
    DOI: 10.1257/jep.20241427
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/jep.20241427
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://doi.org/10.3886/E233401V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23694
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23695
    Download Restriction: no
    File URL: https://libkey.io/10.1257/jep.20241427?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Rubin, Donald B, 1986. "Statistical Matching Using File Concatenation with Adjusted Weights and Multiple Imputations," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 87-94, January.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Buss, Adrian, 2013. "Capital controls and international financial stability: a dynamic general equilibrium analysis in incomplete markets," Working Paper Series 1578, European Central Bank.
    2. Christiane Goodfellow & Dirk Schiereck & Steffen Wippler, 2013. "Are behavioural finance equity funds a superior investment? A note on fund performance and market efficiency," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 111-119, April.
    3. Zhigang Feng & Matthew Hoelle, 2017. "Indeterminacy in stochastic overlapping generations models: real effects in the long run," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(2), pages 559-585, February.
    4. Monica Paiella, 2007. "The Forgone Gains of Incomplete Portfolios," The Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1623-1646, 2007 13.
    5. Croce, M.M. & Nguyen, Thien T. & Raymond, S. & Schmid, L., 2019. "Government debt and the returns to innovation," Journal of Financial Economics, Elsevier, vol. 132(3), pages 205-225.
    6. Martin Bodenstein, 2008. "International Asset Markets and Real Exchange Rate Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 688-705, July.
    7. Pasquale Lucio Scandizzo, 2014. "The social rate of discount, climate change and real options," CEIS Research Paper 309, Tor Vergata University, CEIS, revised 18 Feb 2014.
    8. Liu, Bo & Niu, Yingjie & Zhang, Yuhua, 2019. "Corporate liquidity and risk management with time-inconsistent preferences," Economic Modelling, Elsevier, vol. 81(C), pages 295-307.
    9. Camilo Alvis & Cristian Castrill�n, 2013. "Tamano óptimo del gasto público colombiano: una aproximación desde la teoría del crecimiento endógeno," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID.
    10. François Gardes, 2021. "On the value of time and human life," Documents de travail du Centre d'Economie de la Sorbonne 21023, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. Alan Gregory, 2011. "The Expected Cost of Equity and the Expected Risk Premium in the UK," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 3(1), pages 1-26, April.
    12. Smoluk, H. J. & Neveu, Raymond P., 2002. "Consumption and asset prices: An analysis across income groups," Review of Financial Economics, Elsevier, vol. 11(1), pages 47-62.
    13. Christian Bach & Peter O. Christensen, 2016. "Consumption-based equity valuation," Review of Accounting Studies, Springer, vol. 21(4), pages 1149-1202, December.
    14. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," Journal of Economic Growth, Springer, vol. 9(4), pages 391-421, December.
    15. Bakshi, Gurdip & Chen, Zhiwu & Hjalmarsson, Erik, 2005. "Volatility of the Stochastic Discount Factor, and the Distinction between Risk-Neutral and Objective Probability Measures," Working Papers in Economics 159, University of Gothenburg, Department of Economics.
    16. Auffret, Philippe, 2001. "An alternative unifying measure of welfare gains from risk-sharing," Policy Research Working Paper Series 2676, The World Bank.
    17. Stavros Panageas & Nicolae Garleanu, 2008. "Yooung, Old, Conservative and Bold: The implications of finite lives and heterogeneity for asset prices," 2008 Meeting Papers 409, Society for Economic Dynamics.
    18. Roel van Elk & Marc van der Steeg & Dinand Webbink, 2013. "The effects of a special program for multi-problem school dropouts on educational enrolment, employment and criminal behaviour; Evidence from a field experiment," CPB Discussion Paper 241.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Gerlinde Fellner & Matthias Sutter, 2009. "Causes, Consequences, and Cures of Myopic Loss Aversion – An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 900-916, April.
    20. Russel J. Cooper & Kieran P. Donaghy, 2007. "Risk and Growth: Theoretical Relationships and Preliminary Estimates for South Africa," Advances in Spatial Science, in: Russel Cooper & Kieran Donaghy & Geoffrey Hewings (ed.), Globalization and Regional Economic Modeling, chapter 17, pages 417-464, Springer.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:39:y:2025:i:3:p:27-44. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.